Apple Inc. takes, on a cumulative basis, one month of shipping time to source the 34 major components and hundreds of other small parts for an iPhone from nearly 200 vendors located around the world. It then sells them to one of its largest subcontractors, Taiwanese manufacturer Foxconn, in Zhengzhou, China.
The Zhengzhou factory, which produces more than 300 iPhones per minute, sells the finished products to resellers around the world using different shipping companies. According to data from the World Economic Forum, 80% of world trade by volume is transported by sea.
A global slowdown in shipments has currently triggered trade chaos, delaying delivery times for critical raw material, intermediate and finished product equipment.
Advanced economies are experiencing labor shortages because the pandemic has reduced the workforce, putting pressure on global supply chains.
Supply nodes are expected to impact manufacturing output in Asia’s third-largest economy, much like elsewhere. Nearly vaccinating a billion people and witnessing an increase in demand in the middle of a festival season, India is a net importer of many things, such as petroleum, electronic components, semiconductors, active pharmaceutical ingredients and fertilizers.
This is how the shipping crisis accumulated
Half of the world comprising the Western economies, which are the largest recipients of coronavirus vaccines, has opened up faster than the other half, including countries where a large portion of the world’s factories are located and are not unable to meet increased demand in developed economies.
The problems began in June when container giant Ever Given, a 20,124 TEU giant (twenty-foot equivalent is a measure of volume in units of twenty-foot-long containers), got stuck in the Suez Canal for nearly a week, delaying hundreds of ships between Asia and Europe. That same month, the port of Yantian in the Chinese city of Shenzhen was partially locked due to a coronavirus outbreak. This disrupted shipping schedules for an entire month, with a domino effect.
According to data from the United Nations Conference on Trade and Development, 70% of world trade by value is transported by sea. Lack of synchronized recovery due to unequal vaccines created congestion leading to doubling of ocean freight rates.
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The modern shipping container is to global trade what packaging material is to Amazon. Labor shortages, increased demand and a lack of raw materials have driven up the costs of all-season containers, the lifeline of global trade. The average price of a 40-foot container rose 2.9% around mid-September 2021 from a month ago and 323% over a year ago, according to the Drewry World Container Index. , which tracks their cost.
The nerve center of bottling is the world’s factory, China. The world’s largest trading nation still pursues strict strategies to keep Covid-19 at bay, slowing its manufacturing prowess.
Small Indian manufacturers, fertilizer manufacturers and the pharmaceutical industry face delays in importing raw materials and intermediate goods, which can fuel inflation.
After widespread layoffs due to a pandemic, global companies are struggling to bring back their workers, many of whom have moved to cheaper places or have relocated. This is the main reason for the labor shortage in advanced economies before Christmas.
“I’m not panicking but I will have to if shipping costs don’t stabilize and regularity is restored,” says Anand Sarin, who exports basmati rice from his factory in Hisar, Haryana.
Port quarantine rules mean ships take twice as long to dock and leave with fresh cargo from 60% of the world’s ports, including India, according to a research note from Sea-Intelligence Plc, based in Copenhagen.
It will linger, forecasters say. “It’s hard to see supply chain bottlenecks resolved anytime soon, with some major exporters, including Indonesia and Vietnam, still struggling to contain the delta outbreak. This could continue to dampen the global recovery by slowing production and increasing costs, but not derail it, ”Chang Shu, Bloomberg’s chief economist for Asia, wrote in a recent memo.